RBI task force against Indian banks dealing in offshore NDF rupee market

  1. The Reserve Bank of India(RBI) had set up an eight member committee on offshore rupee market.The committee was headed by Usha Thorat.It has submitted its report to the RBI Governor.
  2. The committee was set up to examine offshore rupee markets in depth and recommend appropriate policy measures that also factor in the requirement of ensuring the stability of the external value of the rupee.
  3. The committee has recommended that currently Indian banks should not be allowed to deal in the offshore rupee derivative market or Non-Deliverable Forward(NDF) markets.
  4. However,the committee has recommended the extension of onshore market hours to improve access of overseas users and permit Indian banks to freely offer prices to global clients around the clock.
  5. The committee has also recommended to enable rupee derivatives (settled in foreign currency) to be traded in the International Financial Services Center(IFSC) in India.
  6. The committee has also recommended to allow users to undertake forex transactions up to $100 million in the over-the-counter currency derivative market without the need to establish underlying exposure.
  7. Offshore markets usually referred to as NDF markets are foreign exchange derivatives contract whereby two parties agree to exchange cash at a given spot rate on a future date.The contract is settled in a widely traded currency such as the US dollar rather than the original currency.
  8. Further,onshore currencies simply mean buying the currencies locally, whereas offshore currencies mean buying the currencies outside the national boundaries.
  9. Currency derivatives are exchange-based futures and options contracts that allow one to hedge against currency movements.Simply put,one can use a currency future contract to exchange one currency for another at a future date at a price decided on the day of the purchase of the contract.